WASHINGTON – A mortgage rescue to help hundreds of thousands of struggling homeowners avoid foreclosure and get more affordable, safer loans passed the Senate overwhelmingly Friday, but it faces a bumpy road amid continuing turmoil in the housing market.
The 63-5 vote reflected a keen interest by Democrats and Republicans to send election-year help to distressed homeowners with economic issues topping voters’ concerns.
The plan lets homeowners buckling under mortgage payments they can’t afford keep their homes and get more affordable mortgages backed by the Federal Housing Administration. Banks that agreed to take substantial losses on those distressed loans could avoid costly foreclosures and be assured of recovering at least some money.
The new program would let the FHA insure as much as $300 billion in new mortgages, helping an estimated 400,000 homeowners.
It still faces challenges, however, with the House planning to rewrite key details and the White House threatening a veto without major changes.
“It’s not the final stop, but it is a major stop in getting this bill done,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. “For those who said this Congress cannot come together in a bipartisan fashion to do something responsible about housing, this bill does that.”
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and an architect of the bill, says the few but significant revisions House leaders are seeking could be made in as little as one week.
Dodd said he was expecting minor “tweaks” that could be dealt with quickly.
But key players are bracing for intense negotiations to resolve the differences. They hope to smooth over disputes with the White House at the same time, with an eye toward producing a bill President Bush could sign later this month.
The measure includes a long-sought modernization of the FHA and would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. It also would provide $14.5 billion in housing tax breaks, including a credit of up to $8,000 for first-time home buyers.
Democrats are divided over important elements of the plan, including limits on loans the FHA may insure and Fannie Mae and Freddie Mac may buy. The Senate measure sets them at $625,000, while House leaders – want the cap as high as $730,000. House leaders also oppose the immediate effective date of the Senate plan, preferring to phase in the new regulations for Fannie Mae and Freddie Mac over six months.
Another key point of dispute is $3.9 billion in the Senate measure for buying and rehabilitating foreclosed properties. The House’s band of conservative “Blue Dog” Democrats oppose the money, arguing that it would swell the deficit unless paired with cuts or tax increases to cover the cost.